Question 1

Assume that a speculator purchases a put option on British pounds (with a strike price of $1.50)  for $.05 per unit. A pound option represents 31,250 units. Assume that at the time of the purchase, the spot rate of the pound is $1.51 and continually rises to $1.62 by the expiration date. The highest net profit possible for the speculator based on the information above is:

Accepted Answer

A)   $1,562.50.
B)   -$1,562.50.
C)   -$1,250.00.
D)   -$625.00.E) B) and C)
F) B) and D)

Question 2

Assume that a speculator received news that makes her believe that the yen will appreciate or depreciate substantially in the near future, but she is not certain of the direction. Also assume that exercise price of call and put options are the same. The most appropriate method for speculation is ____and it may be achieved by ____.

Accepted Answer

A)   straddle; purchase put option and purchase call option.
B)   strangle; purchase put option and sell call option.
C)   strangle; sell put option and sell put option.
D)   straddle; sell put option and buy call option.E) B) and D)
F) B) and C)

Question 3

The writer of an uncovered call can experience a loss limited to the option premium.

Accepted Answer

A) True 
 B)False

Exam 5: Currency Derivatives

The writer of an uncovered call can experience a loss limited to the option premium.

Correct Answer
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Correct Answer
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Correct Answer
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Exam 5: Currency Derivatives

The writer of an uncovered call can experience a loss limited to the option premium.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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